Advances in Economics, Business and Management Research, volume 15

1st Global Conference on Business, Management and Entreupreuneurship (GCBME-16 )

The Effect of Return on Assets and Return on Equity to the

Stock Price
Fitri Sukmawati Innes Garsela
Department of Accounting Department of Accounting
Universitas Widyatama Universitas Informatika dan Bisnis Indonesia
Bandung, Indonesia Bandung, Indonesia
fitri.sukmawati@widyatama.ac.id

Abstract-This study aims to determine how the "Effect of It can be seen stock prices PT.Indocement Tunggal
return on assets and return on equity to the stock price on Tbk, change every year for the respective period of 2009 to
PT.Indocement Tunggal Prakarsa Tbk". This study uses 2013. Based on these data can be presumed that the rise and
descriptive-quantitative analysis using classical assumption test. fall of stock prices affected by how investors in recognition of
Collecting data using secondary data in the financial statements.
the company's shares on views on the development of the
The statistical technique used is multiple linear regression
analysis, multiple correlation, determination, t test and f. Results company. If the rate of development of the company
of reseach variation return on Asset at PT Indocement Tbk. able deteriorates or frequent losses that investors will buy the
to explain the variation on stock prices, while ROA increases, shares at a cheap price or lower, and vice versa if the pace of
stock prices also tend to rise, Variation Return On Equity in PT development of the company's progress with good results then
Indocement Tbk. Vaariasi able to explain the stock price , which the investor will purchase shares at a price too high.
when ROE increases, the resulting share price decline. Variations This shows the stock price at PT.Indocement Tunggal Tbk
ROA and ROE are jointly able to explain the variation on share fluctuate. Therefore, changes in the stock becomes important
prices. to be noticed by the actors in the stock market or the capital of
Keywords : Return On Assets (ROA), Return On Equity (ROE)
both the issuer and the market price of the stock formed from
and stock price the forces of demand and supply in the capital market. [1] In
this research, there will be explanation about the effect of
Price to Book Value (PBV), Dividend Payout Ratio
I. INTRODUCTION
(DPR), Return on Equity (ROE), Return on Asset (ROA), and
The higher the level of ROA and ROE, the higher the level of Earning per Share (EPS) toward issuers included in LQ 45
income derived by shareholders in PT.Indocement Tunggal Index. Based on explanation above, financial ratio such as
Tbk. Below is presented data on the level of ROA, ROE and Price to Book Value (PBV), Dividend Payout Ratio (DPR),
Shares in PT.Indocement Tunggal Tbk 2009-2013. and Earning per Share (EPS) should be considered by
investors who want to invest their money in stocks. [2]
TABLE 1 Profitability gap analyzis shows that milk processors achieved
Data ROA, ROE and Shares
PT.Indocement Tunggal Tbk significantly higher profitability compared to cow breeders.
TAHUN ROA (%) ROE (%) SAHAM Furthermore research results suggest that the existence of
2009 28.59 35.54 13.700 differences in the level of profitability among the participants
in the milk production primarily affects capital turnover, and
2010 21.01 24.66 15.950
then the profit margin. [3]recommended that firm size,
2011 19.84 22.89 17.050
leverage, profitability and firm growth should be enhanced in
2012 20.93 24.53 22.450 view of their influence in increasing the share price. [4] The
2013 18.84 21.81 20.000 results from correlation analysis show that there is no
Source: Data Bursa Efek Indonesia (BEI). significant relationship between managerial ownership and
risk-taking and firm performance. [5] that Return On Equity,
Sales Growth and Return On Assets simultaneously affect the
According to Table 1.1 presents the share price development,
dividend policy
ROA and ROE at PT.Indocement Tunggal Tbk for five years.
Referring to the above problems, the authors intend to
In 2009 to 2011 ROA decreased by 12.26% and ROE
analyze and examine the issue and take the title of " TheEffect
decreased by 12.1%, but its share price rose during the year. In
Return On Asset (ROA) and Return On Equity (ROE) on
2012 ROA increased by 1.09% and ROE increased by 1.64%
stock price on PT.Indocemment Tunggal Tbk, Listed in
and its stock price also rose. In 2013 ROA decreased return of
Indonesia Stock Exchange (BEI) Period 2008-2014 ".
2.09% and ROE decreased by 2.72%, while its share price
decline. this can be a problem for the company because of
ROA and ROE were unstable that affect stock prices.

Copyright © 2016, the Authors. Published by Atlantis Press. 53

This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).
 Advances in Economics, Business and Management Research, volume 15
Based on the above background, the identification of issues
that will be discussed in this study are How much influence
the ROA and ROE to the stock price.
the research objectives to be achieved in this research is to
determine how much influence ROA and ROE on stock price.
II. LITERATURE REVIEW
The company's performance can be demonstrated in the
company's reports useful for decision makers for investors
who will invest their funds in the stock market. In the capital
market, securities are often traded shares. Shares are securities
as proof of ownership or possession of individuals and
intuition issued by a company formed limited liability
companies. Shares stated that the owner of these shares are
part of the company owners as well. Thus when an investor
buys a stock, he became the owner or a part of the company's
shareholders. the stock price is the division between corporate
capital and number of shares in issue.
There are several factors that affect the stock price,
between
Other: Return On Assets (ROA) and Return On Equity
(ROE). While the relationship between these variables are as
follows:
According to Syamsuddin ROA also be an indicator
that a company can use its financial resources to generate
value for shareholders. The greater the ROA of a company
meal, the better the company's financial performance. High
ROA is also attracting investors to invest because it is
companies are able to leverage their assets to the business. [6]
ROA can be determined by the following formula:.
ROA (1)
The traditional perspective of the agency theory stresses that
larger boards can reduce potential shareholder-management
conflicts because of the increased vigilance to oversee
management's actions [7]. In addition, added that the resource
dependence theory perspective places greater premium on
large boards because of greater links and access to resources.
Using data from Australian companies, they found a positive
correlation between board size and Tobin's q, a market-based
measure of firm performance; however, no significant
relationship was exhibited when Return on Assets (ROA), an
accounting-based measure of performance, was used.
According to Syamsuddin Return On Equity (ROE) is
the ratio used to measure the ability of its own capital to
generate benefits for all shareholders, both common stock and
preferred stock. This ratio is used by investors to see how far
the company can provide benefits in the future. Return on
equity is one measure of earnings (income) available for
owners of firms (both common shareholders and preferred
shareholders) on the capital that they invested in the company.
[8]Return on equity (ROE) is a closely watched
financial ratio among equity investors. It is a strong measure
of how well the management of a firm creates value for its
shareholders.
The formula for calculating the ROE as follows:
ROE (2)
Some research on the Effect Return On Assets (ROA) and
Return On Equity (ROE) on stock price has a lot to do in
Indonesia with a different approach, with different results.
These differences may occur because of differences in every
capital market conditions and the environment, differences in
perceptions of researchers, as well as the data used is as
follows: [9], Administration, University of Brawijaya with the
title of the study, Effects of Debt To Equity Ratio, Return on
Equity, Earnings Per Share and Price Earning Ratio On The
Stock Market stating that the variable DER, ROE, EPS and
PER simultaneously have significant influence on prices stock
company food and beverages period 2008-2011. ROE partially
influence on stock prices with sig. 0,001 and ROE major
influence on stock prices was 86.2%. Variable EPS partially
influence on stock prices with sig. 0,003 and the influence of
EPS on stock prices was 43.4%. Variable PER partially no
effect on stock prices because it has a sig. amounted to 0.111,
while the influence of PER on stock prices was 17.3%.
ROE has the most dominant influence on stock prices of food
and beverages period 2008-2011. This is reflected in the value
of standardized beta coefficients which indicate that the value
of the highest ROE among other independent variables, which
amounted to 86.2%. Results of research [10], stating that
Based on the results of testing the first hypothesis can be seen
that the Earning Per Share, Return on Assets, Net Profit
Margin, Debt to Assets Ratio and Long Term Debt to Equity
Ratio influence significantly influence stock prices Trading
company listed in Indonesia stock Exchange 2010-2012 period
with the level of influence (Adjusted R Square) together
amounting to 69.6%. Other variables such as Return On
Assets, Net Profit Margin and Debt to Assets Ratio not
significant effect on the stock price at Trade company listed in
Indonesia Stock Exchange 2010-2012. Based on these results,
the EPS is a variable that very need to be considered by the
parties concerned because they affect the stock price.
[11] This study indicated that the relationship between
the share price of listed companies and cash dividend
payment. Most of the companies distribute dividend in shape
of stock dividend. The study also showed that is significant
change in the market price of share before and after the
dividend declaration and payment is taken place.
[12] During the period 2007 to 2011, the results show that
both logistic regression and discriminant analysis can predict
financial distress, and that Return on Equity (ROE)
and Return on Assets (ROA) are the most important two
financial ratios, which help in predicting the financial distress
of public companies listed in Amman stock Exchange. [13]
despite on liberalization level on electricity market in these
countries the effective management of return ratio, controlling
the value and quality of company's debt and planning
company's profitability on electricity market help to influence
market share price.
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 Advances in Economics, Business and Management Research, volume 15

III METHODOLOGY used in the model explains 100% variation of the dependent
Factory PT. Indocement is located in Coventry, West Java variable.
Cibinong on a land of 200 hectares. The factory premises Test-F Test
within 45 Km south of Jakarta and is located not far from the The research hypotheses:
freeway or toll jagorawi. The factory premises selected for Ho = ROA and ROE are not positive and significant effect on
consideration by the mills nearby quarry limestone, clay and stock prices.
silica sand which is a key raw material in the cement industry. Ha = ROA and ROE positive and significant effect on stock
3.1 Data Analysis Techniques prices.
After the data measurement process is complete, the next stage
should be done is the analysis phase, the research data analysis IV RESULTS AND DISCUSSION
techniques using quantitative data by using statistical analysis
using SPSS for Windows version 20.00. 4.1 Development of ROA at PT.Indocement Tunggal Tbk
Tests have been selected based on the purpose of the study, Profitability is the company's ability to generate
the number of variaber studied and the measurement scale optimal profit. The ratio used is ROA, this ratio shows the
used. Secondary data is data obtained in the form of ready- ability of management to manage the assets to generate profits
made, have been collected and processed for the other party. for the company. To know the development of Return on
Based on the description above, researchers selected statistical Assets in PT.Indocement Tunggal Tbk, the period 2008-2014
tests that will be performed include: can be seen from the following table:
1. Multiple Linear Regression Analysis
TABLE 2
Technical analysis of the data used in this study is the
Developments Return On Asset
technique of multiple regression or multiple regression, to test on PT.Indocement Tunggal Tbk
the effect of ROA and ROE to the stock price. Multiple period 2008-2014
regression model is a regression analysis that explains the Year Net Profit Total Assets ROA
relationship between the dependent variable and several 1.745.500 11.286.706 15,47%
2008
independent variables. Multiple regression equations were
2.746.654 13.276.270 20,69%
formulated as follows: 2009
HSit = α + βiROAit + β2ROEit (3) 2010 3.224.914 15.346.145 21,01%
Where :
2011 3.596.918 18.151.331 19,82%
Hsit = stock price of firm i in period t
α = Coefficient constant 2012 4.760.382 22.750.160 20,92%
ROAit = ROA of firm i in period t 5.012.294 26.607.241 18,84%
2013
ROEit = ROE i period t
1,2,3 = coefficient of independent variable 2014 5.274.009 28.884.973 18,26%

Source: Financial Statements PT.Indocement Tunggal Tbk

Analysis of Multiple Correlation, This analysis is used to
determine the relationship between two or more independent
4.2 Development of ROE in PT.Indocement Tunggal Tbk
variables (X1, X2, ... Xn) to the dependent variable (Y)
Profitability is the company's ability to generate optimal
simultaneously. This coefficient shows how much the
profit. The ratio used is ROE, this ratio shows the ability of
relationship between the independent variables (X1, X2, ......
management to manage equity to generate profits for the
Xn) simultaneously to the dependent variable (Y). R value
company. To know the development of Return On Equity in
ranges from 0 to 1, the value of 1 means the closer the
PT.Indocement Tunggal Tbk, the period 2008-2014 can be
relationship is getting stronger, otherwise the value 0, the
seen from the following table:
closer the relationship is getting weaker. TABLE 3
Determination Analysis, Analysis of determination in multiple Return On Equity Developments in PT.Indocement Tunggal Tbk
linear regression is used to determine the percentage period 2008-2014
contribution of the influence of the independent variables (X1, Year Net Profit Equity ROE
X2, ...... Xn) simultaneously to the dependent variable (Y). 2008 1.745.500 8.500.193 20,53%
This coefficient indicates the percentage of variation of the 2009 2.746.654 10.680.725 25,72%
independent variables used in the model is able to explain the 2010 3.224.914 13.007.390 24,66%
variation of the dependent variable. R2 is equal to 0, then there
2011 3.596.918 15.733.951 22,86%
is no iota of influence given percentage contribution of
independent variables on the dependent variable, or a variation 2012 4.760.382 19.418.738 24,51%
of the independent variables used in the model does not 2013 5.012.294 22.977.687 21,81%
explain the slightest variations in the dependent variable. 2014 5.274.009 24.784.801 21,28%
Instead R2 is equal to 1, then the percentage contribution of Source: Financial Statements PT.Indocement Tunggal Tbk
influence given by the independent variable on the dependent
variable was perfect, or variations of the independent variables 4.3 Development of Stock Price PT.Indocement Tunggal

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 Advances in Economics, Business and Management Research, volume 15

The share price is the basic price of a stock that is used in the
a. Predictors: (Constant), ROE, ROA
calculation of stock price index and the price is formed by the
interaction between sellers and buyers of shares are motivated b. Dependent Variable: H.SAHAM
by their expectations of the benefits to be gained. To
determine the share price development in PT.Indocement Judging from the above table obtained figures R of
Tunggal Tbk, the period 2008-2014 can be seen from the 0.855. This shows that there is a very strong relationship
following table:
TABLE 4
between the ROA and ROE to the stock price.. Same with
Stock Price Developments Reseach Al-khatib, Hazem B, Al-Horani, Alaa A
on PT.Indocement Tunggal Tbk that Return on Equity (ROE) and Return on Assets (ROA) are
period 2008-2014 the most important two financial ratios, which help in
Year Stock Price
predicting the financial distress.
2008 4.600
2009 13.700 2.4 Determination Analysis
2010 15.950
2011 17.050 Koefisien determination shown from R-square value of
2012 22.650 0.731. This means that 73.1% dependent variable is the share
price can be explained by two independent variables, ROA
2013 20.000
and ROE. While the remaining 26.9% is explained by
2014 25.000 variables or other causes.
Source: Financial Statements PT.Indocement Tunggal Tbk From the table above it can be concluded F count> F table
4.2.2 Multiple Linear Regression Analysis (5.422> 4.324), then Ho is rejected and Ha accepted, meaning
Technical analysis of the data used in this study is the that there is influence between the ROA and ROE to the share
technique of multiple regression or multiple regression, to test price. So the hypothesis that the writer suggested in chapter I,
the effect of ROA (X1) and ROE (X2) on stock prices (Y). that ROA and ROE affect stock prices are acceptable.
Multiple regression model is a regression analysis that
explains the relationship between the dependent variable and CONCLUSION
several independent variables. Multiple regression equations
were formulated as follows: Variation return on Asset at PT Indocement Tbk. able to
TABLE 5 explain the variation on stock prices, while ROA increases,
Multiple Linear Regression Analysis
stock prices also tend to rise, Variation Return On Equity in
Coefficientsa PT Indocement Tbk. Vaariasi able to explain the stock price ,
Model Unstandardized Standardized T Sig.
which when ROE increases, the resulting share price decline.
Variations ROA and ROE are jointly able to explain the
Coefficients Coefficients variation on share prices.
B Std. Error Beta

Constant 16137,668 20872,846 ,773 ,483 ACKNOWLEDGMENT

1 ROA 6305,273 1941,289 1,866 3,248 ,031 The researchers gave suggestions relating to this study as
follows:
ROE -5238,201 1974,993 -1,524 -2,652 ,057 1. Return on Assets and Return on Equity PT.Indocement
a. Dependent Variable: Stock Price Tunggal Tbk, needs to be increased again by increasing the
net profit. The increase in net income can be done by
increasing the value of sales of both goods and services
4.2.3 Correlation Analysis and cost efficiency by evaluating all costs with regard to
This analysis is used to determine the relationship between the level of optimization.
two or more independent variables (X1, X2, ... Xn) to the 2. The price of a single stock PT.indocement Perkasa, need to
dependent variable (Y) simultaneously. pay attention to earnings per share, interest rate, given the
amount of cash dividends, the amount of profit the
Table 6 company obtained, the level of risk and return and
Correlation Analysis marketing strategies.
Model Summaryb
3. We thank participants of the research seminar at the
Model R R Square Adjusted R Std. Error of Universitas Pendidikan Indonesia, Global Conference on
Business, Management, and Entrepreneurship, August
Square the Estimate
2016 for helpful comments.
1 ,855a ,731 ,596 4270,124

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 Advances in Economics, Business and Management Research, volume 15

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